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Ed Johnson
Ed Johnson, Tax Preparer
Category: Tax
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Im US citizen living permanently in Ireland. I have

Customer Question

I''m US citizen living permanently in Ireland. I have dual citizenship. I have a US social security number but, to date, I have never held a job or paid taxes in the US. Recently I have begun trading online in the US stock market and I am unsure about what my tax obligations in the US are. I would prefer to pay tax in the country I live in. I am aware that Ireland has a tax agreement with the US but I don''t know how it applies to me.
Submitted: 6 years ago.
Category: Tax
Expert:  Ed Johnson replied 6 years ago.

Dear Trader,

By law, as a U.S. Citizen (even with dual citizenship), you are required to file a return every year claiming your world wide income.

The U..S. allows a generous foreign income exclusion, but to get it, you have to apply for it and file the return.

You are not alone in this short coming. Thousands of American living abroad are not meeting their filing requirements.

The tax treaty, allows the country in which you are living and earning income to tax your foreign earned income first. The use then taxes the amount that is in excess of the foreign earned income exclusion, and gives you credit for taxes paid to the foreign country, in this case, Ireland.

Your tax obligation to the U.S. is that the stock that is purchases from the U.S. exchanges is taxed first by the U.S. when you sell them as short term or long term gains.

 

 

Ed Johnson, Tax Preparer
Category: Tax
Satisfied Customers: 10760
Experience: GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee
Ed Johnson and other Tax Specialists are ready to help you
Customer: replied 6 years ago.
Thank you. Your reply is helpful and well worth the money. I just need further clarification on some points. Count this as a second question if you wish.

I have been trading options for short term gains (and losses). I have closed a few positions already

About 2 years ago I closed a small US stock position at a small loss (about $20). Does that factor?

When it comes to paying tax on the gains from US stocks should I deal directly with the IRS?
I've heard about W-9 forms which I am supposed to fill in and send to my broker who will then send it on the the IRS. My online broker is based in the UK and and were/are unaware of my American Citizenship. If I requested a blank W-9 Form from them would they know what I was talking about?
Expert:  Ed Johnson replied 6 years ago.

Dear Trader,

You would figure any short or long term gains and losses on schedule D.

REFERENCE: http://www.irs.gov/pub/irs-pdf/f1040sd.pdf

If there is a loss, then no tax is due because there is no capital gain. The capital loss reduces your taxable income.

The W-9 is filled out by you indicating if you are subject to back up with holding or not. Since you are a citizen living abroad (non-resident) most likley you would be subject to backup withholding.

The W-9 is not sent to the IRS, contrary to popular belief. It is maintained on file by the business or in this case, the brokerage as part of their records to substantiate that you disclosed the ssn and that you indicated if you were subject to backup withholding or not. They would use it to protect themselves in an audit.

http://www.irs.gov/pub/irs-pdf/fw9.pdf

FYI: your UK based broker does not have a reporting requirement to the IRS.

 

Customer: replied 3 years ago.
Dear Mr Johnson

I received two replys to tax questions from you 2 years ago. I hope you have been well since then.Smile I assume that my previous questions are still accessible to you via my account on the Just Answer website.

I have continued my trading activity but am yet to make an annual profit. Because of this I have not yet filed a tax return with the IRS.

Recently, it seems that my UK based broker has become subject to a reporting requirement to the IRS because they sent me a request to fill in and return a W-8BEN to them.

I understand that a W-8BEN doesn't apply to me. However, because of my brokers obligations it has become necessary for me to send my broker a W-9 form instead or they will have to suspend my account. The purpose of this, from the IRS's point of view is so that they can recieve withholding tax on dividends on US equities one way or the other. I trade in options and to date my account hasn't recieved any dividend payments.

Does my broker only contact the IRS with my details when I have dividend income to report or do they pass my details to them right away?

If it is the latter this will be my first, indirect, correspondance with the IRS and it seems like this would be the right time to get up to date with them and begin filing tax returns.
If so, I want to go about it in the right way and would appreciate your advice on how to go about approaching them and becoming fully compliant in a way that doesn't get me into trouble.

I would prefer that it is the former so that I can stay off their radar until I am making enough money to hire an expert here in Ireland to do it for me.

Regardles, please let me know where I stand.

Sincerely
Customerbr />

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Ed Johnson
Ed Johnson
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GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee